The ‘Likes’ and Dislikes of Facebook’s ‘Secret’ Advertising Weapon

Written by William I. Rothbard on Tuesday, August 14th, 2012

If you’re like 900 million other people, you’ve probably clicked “Like” on some product you’ve seen on Facebook or other site at some point in your online existence. If you’re like those 900 million, you also probably didn’t know that when you did that, you were providing an “endorsement” – replete with your name and picture – that could appear in an ad the seller of the product paid Facebook to run in the news feeds of all your Facebook “friends.” And you would be like a small cadre of those 900 million who also didn’t know this, and were angry enough about it to sue Facebook in a federal class action in California, claiming this “covert” advertising technique violated their “rights of publicity” and constituted an unfair and deceptive marketing practice.

The class action in Fraley et al. v. Facebook took dead aim at Facebook’s “Sponsored Stories” program that has been its most effective advertising method and is a central plank of its business strategy to “monetize” those 900 million users (and, not coincidentally, salvage its plummeting stock and battered post-IPO reputation on Wall Street). “Sponsored Stories” are popular with advertisers because consumers are much more likely to recall and respond to an ad if it came with a plug from a Facebook friend. They also tend to blend into the news feeds and thus don’t seem like traditional ads, which increases their effectiveness.
The “right of publicity” protects against the commercial exploitation of a person’s name and likeness without consent. Facebook contended its users gave “implied consent” every time they clicked “like” or posted a favorable comment. It also said it didn’t need consent to exploit them in advertising because sponsored stories were actually “news,” since all Facebook users were “public figures” to their friends. This novel theory of “fair use” will never be tested, at least in this case, because after a year of litigation, Facebook agreed to a settlement that bans it from converting its users into unwitting endorsers of its advertisers’ products.

Under the settlement, Facebook must disclose to all users that their names and likenesses may be used in “Sponsored Stories” ads, thereby ensuring it has their permission for such uses. In addition, users will have greater ability to see and control which of their “likes” and posts appear in Sponsored Stories.

While the settlement protects the rights of Facebook users to control the use of their preferences and identities in Facebook advertising, it leaves open the interesting question whether an advertiser’s use of a person’s “like” or a post as an endorsement may violate Federal Trade Commission (FTC) requirements that endorsements represent a person’s honest belief about a product based on personal use and experience. Consumers can “like” a product for any number of reasons having nothing to do with the merits of the product itself (i.e., to qualify for promotions, get new product updates, or receive some other tangential benefit). Many will never even buy or use it.

To “like” a product on Facebook is not necessarily to truthfully “endorse” it, even if you will now be able to give your informed consent to its use as an advertising plug on Facebook under the class action settlement. As Facebook moves past this legal challenge to its prized “Sponsored Stories” program, it will be interesting to see if, at some point, it doesn’t face an even bigger challenge from the FTC.